Steel Buyers Facing a Triple Whammy?

The steel mills seem to have discovered new-found courage with the expectation of less competition from foreign steel once President Trump announces whatever remedies he wishes to impose on imports from around the world due to “national security” concerns and the recommendations of the Commerce Department under Section 232 statutes.

In the week of June 5, 2017, every major U.S. and Canadian flat rolled sheet mill announced $30 per ton ($1.50/cwt) increases. Benchmark hot rolled pricing is now approaching $600 per ton after declining to an average of $580 per ton (with the low end of the range dropping to the $540-$560 area), according to the Steel Market Update index. This afternoon (June 15) ArcelorMittal became the first mill to announce a new round of price increases as they asked their customers for another $30.

The price announcements and the resulting surge of orders from service centers and end users is pushing lead times out anywhere from one to four weeks, depending on product, producer and location. As lead times extend, this creates a situation that emboldens the North American steel mills.

There are rumors flying that the sheet mills will announce another price increase yet this week (the week of June 12) or early next week. It appears the steel mills want to get as many price announcements into the system as possible prior to the president’s Section 232 decision.

After President Trump makes his announcement, well, all heck is expected to break loose. Many in the industry see Section 232 restrictions on imports as a foregone conclusion. “Two mills told me today that once 232 is announced and the flurry of new orders rushes in, they will vow to ‘protect’ their current and loyal customers and not bump them out in favor of new customers willing to pay higher spot pricing,” said the vice president of a large U.S. based service center. “I find this disturbing, as 232 is yet to be announced and the mills are already talking allocation language. Almost like the mills were ‘tipped off’ on what is coming?”

Allocation is a bad word if your company is a buyer of steel. You may not be able to get all the material you need. Steel buyers are also potentially in jeopardy whenever the U.S. government gets involved with picking winners and losers.

The rumor mill is also churning on what form the sanctions against imports may take, ranging anywhere from up to a 30 percent tariff, to establishing a quota system to a trade rate quota (TRQ) system. SMU’s prediction is that Commerce Secretary Wilbur Ross will recommend a formula for determining the “normal” level of imports, and then somehow putting a collar around that average and subject imports that exceed it to a very high tariff.

Picking the appropriate time period for the TRQ formula will also be politically and emotionally charged. If the time period is a 5-year average with the suggestion being prior to the surge in imports in 2014-2015, then we may be looking at the years 2009-2013. You don’t have to be a rocket scientist to remember 2009-2010 were two of the worst years for the steel industry, both domestically and internationally, due to the Great Recession (We have a separate article depicting two potential time periods and what it would look like for galvanized steel).

There are many in the industry who believe restricting foreign steel is a bad idea, including manufacturers that rely on foreign steel, ports that handle foreign steel, logistics and trading companies that support foreign steel, as well as segments of the government.

In a World Trade Online article published June 12, 2017, some key players questioned Section 232, including Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, and the Department of Defense itself—which is ironic since a Section 232 investigation is based on “national security.” The World Trade Online published more information on the “push-back” the plan is getting as some question how any extreme action would actually impact the economy – especially the consumer.

President Trump’s Press Secretary Sean Spicer told reporters on June 12 that the report from the DOC will also recommend that Congress take action. World Trade Online quoted Spicer as saying, “When that comes out, there are certain recommendations that will be made to Congress to address antidumping provisions in the steel and aluminum and other markets. I think there will be recommendations to Congress to follow up on how to rectify some of the problems.”

Wow! That makes it a Triple Whammy for those wanting to buy the most competitively priced steel for their company. First, we have the U.S. and Canadian steel mills taking prices higher. Then we have the expectation of a Section 232 announcement, which will stem the excessive flow of imports. And third, we have a recommendation by the DOC to Congress to tighten trade laws to benefit the steel industry.

Steel buyers should also be aware that the one-year review of the antidumping (AD) and countervailing duty (CVD) trade cases on CORE (corrosion resistant), cold rolled and hot rolled steel will begin this summer.

Guess that makes it a Grand Slam!

It’s an interesting and exciting time to be involved with the steel industry.

SMU Note: Our expectation is there will be something coming out of the Section 232 investigation. We expect, but have no knowledge of, exceptions for those buying slabs or other products that might be in short supply. We do not know if the recommendation will be for straight duties (we have heard as high as 30 percent) or something that represents a quota system. The TRQ (Trade Rate Quota) has been suggested to SMU by at least one steel mill but, we do not have any inside information and can only speculate at this time. We do expect to see more on this subject in the coming days as news leaks out of Congress and other government departments. It may be too late but it appears there are those who are worried about manufacturing and what the consumer will have to pay… After all, the steel mills are raising prices (twice in 10 days) as we move into a traditionally slower period (summer shut-downs) when we normally don’t see prices rising. This before any decision has been announced on Section 232…

SMU Steel Summit

Steel Market Update will host its 7th SMU Steel Summit Conference on August 28-30, 2017, in Atlanta. We will have speakers discussing trade-related topics including the debate over free and fair trade, Section 232, Section 337, circumvention and the status of the AD/CVD trade suits. We will have speakers forecasting commodity and steel prices through 2018, economic conditions and many other topics associated with manufacturing and steel.

You can find details about our conference on our website: www.SteelMarketUpdate.com/Events/Steel-Summit or feel free to contact me at: John@SteelMarketUpdate.com.